What is EIIS
EIIS was introduced by the Government in 2011 as a replacement for the Business Expansion Scheme. EIIS aims to encourage individuals to provide equity-based finance to unquoted private trading companies to create employment.
EIIS is a tax relief incentive allowing investors who qualify (individuals not connected to the company) to deduct the cost of their investment in a company from their total income, for income tax purposes. Up to 40% tax relief (on the sum invested) is available provided the investor holds their
investment for 4 years.
Limits
The maximum annual investment amount per investor is now €250,000 per annum (previously €150,000). In the event that an investor has insufficient funds to fully utilise the relief in the year the investment was made any excess amount subscribed may be carried forward and claimed as tax
relief in subsequent tax periods.
A second maximum limit of €500,000 was introduced for those investors who are prepared to invest in a EIIS scheme for 7 years or more.
The maximum amount which a company can raise under the EIIS Scheme is €15,000,000 with up to €5,000,000 in any 12-month period.
Qualifying Company & Investment
There are restrictions on what qualifies a company to raise EIIS; in general, a company needs to be unquoted and undertaking activities carried on in the course of a trade, the profits or gains of which are charged to corporation tax at the standard rate of 12.5% (certain trading activities are specifically excluded and professional opinion should be obtained).
For an investment to qualify under EIIS it must be an investment in shares in a qualifying company where the funds are used for qualifying purposes and contribute towards the creation and maintenance of employment. In addition, the investment must be based on a specific business plan.
The investment must generally be made within seven years of the company’s first commercial sale.
Claiming Relief
Once the company has expended 30% of the EIIS funds raised, a statement of qualification is issued to each investor to certify that a qualifying investment has been made in a qualifying company, and this can be used by the investors to claim their tax relief, via their individual income tax returns.
EIIS Redemption
Where the EIIS exit is by way of a share redemption within five years then the uplift in value will be subject to income tax. Where the shares are redeemed after five years any uplift in value will be subject to capital gains tax.
The following is as Illustrative example of the potential returns on an EIIS investment:
**Where the EIIS exit is by way of a redemption within 5 years or S135 TCA 1997 applies then the uplift will be subject to income tax. If the redemption occurs after 5 years, then the uplift will be subject to CGT (above CGT calculation is exclusive of €1,270 annual exemption).
Warning: the above figures are estimates only. They are not a reliable guide to the future performance of any EIIS investment. The value of an investment may fall as well as rise. You may get back less than you invest. This information is based on our understanding of current tax legalisation and is subject to change without notice. Investors in an EIIS should obtain their own legal, taxation and financial advice.
There are specific restrictions relating to EIIS from both an investor and company point of view, and professional advice should be sought. If you are an individual investor seeking EIIS opportunities or a company in need of advice on how to raise EIIS funding, and whether you qualify, please feel free to contact the MC2 Accountants Corporate Finance team on 021-4861486 or info@mc2group.ie